Exempt Organizations

For more than 50 years, Caplin & Drysdale’s Exempt Organizations Group has served some of the nation’s most prominent nonprofit organizations. We represent hundreds of tax-exempt organizations each year, ranging from small start-ups to the largest private foundations in the country. The Group prides itself on providing creative, pragmatic, and accessible legal advice informed by a keen understanding of and sensitivity to the mission and business objectives of its nonprofit clients.

Areas of Focus

Advocacy, Lobbying, and Political Campaign Activity

Caplin & Drysdale’s Exempt Organizations group has substantial experience navigating the rules that affect a nonprofit organization’s ability to engage in advocacy, lobbying, and political campaign activities. Several of our attorneys played an active role in drafting and enforcing these rules while at the IRS, and they bring a unique perspective to nonprofits seeking to accomplish advocacy goals while minimizing compliance risk. Based in Washington, D.C., we have the advantage of ongoing contact with the IRS and Treasury Department officials. We are able to learn of new developments in the interpretations of the law and, more importantly, how the IRS will treat advocacy, lobbying, and political campaign activities when implemented. We have counseled and trained a broad range of charities, private foundations, and social welfare organizations on how to engage in advocacy within the law. Activities that require consideration of what the tax law requires may also be subject to federal, state, and local lobbying disclosure and campaign finance rules. For this expertise, we partner with our Political Law colleagues.

IRS Interaction

When the IRS begins an audit of your organization, the possible consequences might be much more serious than simply a bill for tax due. Your exempt organization might lose credibility with the public and with donors, tax-exempt financing, and possibly its exemption altogether. Caplin & Drysdale can defend your exemption – and everything that depends upon it – in an IRS examination.

Our attorneys have represented exempt organizations in every stage of the audit process, including litigation where we collaborate with our Complex Litigation group. We frequently work as part of a team with in-house counsel, local counsel, and other lawyers who have an established relationship with the organization to offer our unique expertise with the IRS.

In addition to handling IRS audits, our attorneys regularly represent organizations seeking a ruling or a determination before the IRS and remain in ongoing contact with the IRS agents and officials. Several of our Exempt Organizations attorneys have previously served as technical advisors to the Director of Exempt Organizations at the IRS, allowing them to gain insider knowledge of the IRS rules and operations and to better navigate the IRS processes in order to help organizations achieve their programmatic and philanthropic goals.

Tax-Exempt Organization Formation

Caplin & Drysdale represents new nonprofit groups in all aspects of the organization process, including structuring and creation of the new entity, qualification for tax-exempt status and applications to the IRS, and ongoing advice for maintaining that status. In connection with creating new tax-exempt organizations, our advice typically includes counsel either on achieving and maintaining public charity status or on complying with the regulations governing private foundations. In addition to forming entities, the Exempt Organizations group has extensive experience with helping nonprofit organizations with compliance filing requirements that may be triggered by their activities within a specific jurisdiction. Requirements may include business licenses, trade name registrations, doing business registrations, charitable solicitation registration, and obtaining exemptions from state taxes.

Private Foundations

Caplin & Drysdale has been helping private foundations navigate the rules governing their special tax status since the rules were first written into law in 1969. One of our earliest Exempt Organizations Members, Thomas Troyer, was a principal author of the original Treasury study that forms the backbone for all of these rules. He and other Caplin & Drysdale attorneys have been instrumental in the development and understanding of these rules over the past 50 years.

Our work on behalf of clients ranges from helping individuals who want to establish traditional family foundations with standard grantmaking programs to helping some of the largest and most innovative foundations in the country explore the boundaries of program-related investments, grantmaking abroad, and venture philanthropy through a network of taxable and tax-exempt entities. Our attorneys work with private foundation clients on specialized issues like self-dealing, excess business holdings, jeopardizing investments, and taxable expenditures; charitable distributions; executive compensation; and reviewing arrangements for foundations that support work involving government officials to ensure compliance with the self-dealing rules and working with our colleagues in our Political Law group on the ethics and gifts rules that may apply.

Public Charities

As skilled nonprofit law advisors, we form and represent hundreds of public charities each year, ranging from small start-up organizations to the largest public charities in the country. Within the scope of our representation, we advocate for their interests before federal agencies, federal and state courts, state attorneys general, and other nonprofit regulators. We also provide ongoing legal and practical advice on maintaining public charity status; executive compensation; advocacy and lobbying activities; and how public charities can structure their activities within the limits of the law, focusing on finding innovative solutions that allow them to achieve their programmatic objectives.  Over the years, Caplin & Drysdale’s Exempt Organizations group has represented all types of public charities, including advocacy groups, nonprofit newspaper publishers, environmental organizations, health charities, universities, hospitals, “friends of” organizations, churches, and foreign organizations.

Affiliated Entities

Many exempt organizations find that they can achieve their missions more successfully by creating affiliates, whether tax-exempt or taxable. Affiliates may meet a range of needs from limiting liability for a particular activity, to carrying out activities that may threaten the exemption of the initial organization to creating a more attractive funding vehicle for donors. We routinely counsel clients on the myriad of issues that come with these arrangements involving federal information return reporting, state tax exemption, tax matters related to charitable giving, and employment tax and employee benefit plan compliance. Our attorneys have helped many organizations structure tax-efficient arrangements with affiliates and subsidiaries that meet their business needs. We also have assisted existing affiliates identify legal risks and address them by ensuring they have appropriate practices, policies, and procedures in place governing the relationship. The Exempt Organizations group has extensive experience with conducting mock audits, drafting resource sharing agreements, and otherwise helping affiliated organizations collaborate while maintaining individual autonomy and minimizing the risk of losing their exempt status.

Family Philanthropy

Caplin & Drysdale regularly assists high-net-worth individuals (HNWIs) and their families in achieving their philanthropic objectives. Our Exempt Organizations team can help with:

• offering advice on the operation and governance of family foundations;
• devising philanthropic plans that utilize direct charitable giving, donor advised funds, charitable remainder trusts, and family foundations; and
• assisting domestic and international clients with developing sophisticated estate plans, including planning for lifetime gifts, charitable giving, and dynastic transfers.

In partnership with our Private Client group, we provide practical guidance to HNWIs, their families, and their nonprofit organizations, helping them make the best decisions from the standpoint of charitable and estate planning. 

Revenue-Generating Activities

Being tax-exempt does not always guarantee that an organization will never have to pay income tax. An organization with too much taxable activity may risk losing its tax-exempt status altogether. Our Exempt Organizations attorneys are skilled at helping nonprofits understand how the unrelated business income tax rules work so that they can make informed decisions to minimize or eliminate tax liability and protect their tax-exempt status. Our attorneys drew on their technical expertise to help clients work through the complexities and uncertainty caused by Tax Cuts and Jobs Act’s changes to the calculation of unrelated business taxable income (UBIT). Our experience goes beyond planning—we have successfully litigated UBIT issues in the Tax Court and in other federal courts and have resolved numerous UBIT disputes at the IRS appeals level.